Honor All Cards Explained: Visa & Mastercard Settlement Breakdown for Payment Professionals | PEP099

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Say, oh, I don't I don't like Bank of America.
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I prefer US banks.
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So So product is the particular type of card brand product versus brand, which is the same thing.
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Yeah, which is just yeah, the brand.
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So right now you can only discount at the product level.
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You cannot discount at the issuer level, but with the with the subject.
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But again, that would be that would be impossible to determine.
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And think about that.
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Somebody walks up to your place of business, you sell something unique, and they you look at them and go, nope, not that card.
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Really?
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Like, really?
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Well, also you can't, I mean, there's no way for you to say, I don't, I won't take your card issued by American Express.
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You can only say, I don't, I don't want to.
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Or I guess it would be it would be US bank.
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I can't take your US bank card.
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You have to say I don't want to.
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And then the the card holder could be like, I don't care.
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I want to pay with my US bank card.
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And the merchant has to say, okay.
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Welcome to the Payments Experts Podcast, a podcast of Global Legal Law Firm.
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We hope you enjoy this episode.
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We got Jess on the podcast today.
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Uh Jess has been with us for a really long time.
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Um, I like to call her our promote from within department.
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Uh Jess went to uh Jess's local San Diego, went to school, came to us after she graduated college, just got an admin job, looked at the paralegals and went, oh, I think I could do that.
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Got a paralegal certificate, looked at the lawyer, said I think I could do that.
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Went to law school.
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She was law review here at USD, which is the premier uh law school in in our city, and uh got her got her bar license in July, and she's just an actual go-getter, which I love you, Jessica.
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Um, so Jessica, trying to be the go-getter that she is, came to my office and said, Hey, can I do a podcast?
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And I said, sure.
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And she said, I want to do it on the the uh recent changes to the interchange settlement with the card brands.
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And uh, I guess some of the prior proposals by Visa MasterCard were rejected.
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And so Visa MasterCard came back to the table and made an offer to the judge, the judge rejected and made an offer to the judge.
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And so Jessica's thought was, well, let's break down and see what Visa MasterCard is trying to do.
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And does it have value, or is it really just masquerading as uh, you know, window dressing to make themselves look somewhat better?
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And we actually went through it and it's it's kind of interesting.
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Um, but I think it's important to give some foundation to to our listeners, viewers.
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Um, so what was rejected by the judge initially?
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Do you know?
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Um, I think there it was on or all cards, I think, what was what the judge rejected.
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I'm not super familiar with the rejected settlement.
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All I know is that it was rejected.
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And we said MasterCard built on what was in there originally to make the settlement in November.
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Yeah, so so I think that's really important, Segway.
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So um, you know, when we were sitting there discussing interchange, I thought it was really interesting how you kind of based on some of the proposed changes, um, referenced how it's a two-sided system.
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Um, I don't think we really touch on that much.
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I mean, we do, but in kind of a weird way.
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I mean, tell tell our listeners what what the two-sided system to interchange is.
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Yeah, so a two-sided network is a network that has two participants that need to meet in the middle.
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So um, for instance, in in the card brand context, it's the consumer and the merchant.
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Um, there are other contexts like bars where they have like free admission for women and like men have to pay.
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And so, like what this does is it's an imbalance between the allocation of the cost to the participants in the network, and they allocate the higher cost to the party that is less less tolerant of, or I guess more tolerant of change.
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So, in in the context of a bar, I guess women would be less likely to go to the bar if they had to pay.
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But if women are admitted for free, men are more likely to pay to get into the bar.
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So the bar gets more people in the bar to buy drinks.
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And also um the cost is is allocated towards the men.
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So it's it's a so I think this is really interesting because this is the first time we've really talked, and this is a great analogy, Jessica.
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I love the analogy that you're making because I think most people would understand it.
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And we talk about acquiring and issuing, and these are the two sides of the network, right?
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We've got our cardholders and we've got our merchants.
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And it's this idea of you know who's gonna be more tolerant to the change.
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Um, I do believe, like in your bar scenario, that um the women are the ones that get focused on because men will just do whatever.
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So I I I honestly believe that the card holders, very similarly, are the ones that get focused on because the merchants are primarily sing, they're singular singularly based, right?
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Like I'm selling a product or service.
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And that's like whether or not I live a die or live or die is based on selling the product or service.
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And that's very much like whether or not my mother stopped bothering me about being married depends on whether or not there's women available to me.
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So I kind of feel like I that analogy is really apropos.
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Um so I think it's important that people understand that we have this two-sided networks with participants and that there is incentives on both sides, but I think primarily on the cardholder side, the incentives move, and that's really where the card brands or the networks focus.
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Um, but the the idea of the the changes that we discussed, it wasn't so much changes to like interchange itself, yeah.
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Right?
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It was more changes to kind of items that are intended to have an impact on processing generally, not just interchange.
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So, like you mentioned the honor all cards rule.
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Like tell tell our viewers what the honor all cards rule is.
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So the honor all cards rule is the rule that if you're a merchant accepting, let's say, MasterCard, you have to generally accept like all of the types of MasterCard cards.
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Um, because of a settlement, I think it was in 2011, they slightly scaled back the honor all cards rule so that the categories of cards that a merchant can choose to accept or choose to decline right now are debit and all other cards.
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So either you can accept debit, all other cards, both, or neither, and that is it.
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So so you can choose one or the other or both.
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Okay, so it's really up to the merchant what they want to do.
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But, you know, when we were talking, one of the things that I think is kind of ludicrous about it is, you know, let's go back to your bar analogy, because I think it's a perfect thing.
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I got some there's there's 30 people at the bar all looking for a drink.
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The bartender is only looking to serve as many people as possible and as much time or as little time as possible, more tips, right?
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When you look at the card, and with technology especially, I think that this would be tough.
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How is the merchant supposed to determine in a card-present environment like that what card belongs to which category?
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Yeah, so I mean, right now the merchant really would not know.
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Um, the change to the rule would allow a merchant to distinguish between debit cards, commercial credit cards, standard consumer credit cards, and premium consumer credit cards.
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And to that end, if the settlement were accepted by the judge, the card brands would like put they would indicate on the face of the card.
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So I think they would start sending out new cards to their consumers, saying like standard, standard consumer or business.
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So in that way, the merchants would be able to tell.
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Otherwise, I'm not sure.
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So, like for for me, when I see because look, when I go to any sort of point of sale, how the merchant interacts with me as a cardholder is really dependent on the merchant's cost always.
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And some of them are extremely aware of it, and some of them are not aware of it at all.
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You just laid out four different standard cards, right?
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Like that they've they've classified.
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How would I know?
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I I mean, I would now understand what group that goes into, but as a merchant, how would I know to determine what percentage of cards are normally in use so I know if I'm excluding one of those categories of cards, what the impact potentially on my business is going to be?
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I'm not sure how you would know that.
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I would think that you would need to like check somewhere online, maybe, just kind of look it up.
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I'm not sure that you would be able to like guarantee that you have the correct answer.
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And I think also like if you were a merchant, why would you want to stop accepting like let's say business cards?
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Like you would you would lose more business than you would gain from in in the reduction in interchange from not accepting that card anymore.
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So the even if the rules were to change, merchants would still be incentivized to accept all kinds of cards.
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Sure.
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Well well, it's it's interesting too, because like I actually learned a lot about Jessica doing this because she got into things that I don't normally really even look at.
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And one of them was is that the honor all cards rule has exceptions now, right?
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I mean, it's not that a merchant has to honor all cards, but if they don't honor all cards, my understanding from Jessica, very similar to surcharging, is that there has to be signage at the point of entry and at the point of sale that we don't accept a particular card.
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But then she said, you know, like there were there were thoughts about how to impact interchange in the new rules if you didn't decide to accept all cards.
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But, you know, she used what was it?
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It was uh uh a standard commercial versus something.
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Well, give give me the the cards again.
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The difference between the interchange fees?
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Yeah, well, you you had you had mentioned two cards, and I was like, there was like an individual stand, yeah, standard individual, commercial card.
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You were just standard consumer and the premium consumer?
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Yeah, the standard consumer and premium consumer.
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I'm sitting there thinking to myself, well, that's just like rewards, no rewards, right?
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Like, I mean, what does that really mean?
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And I think, you know, a standard consumer card is one that I can just sort of guess as a merchant that less people have that issued to them because everybody wants a rewards program, assuming that they can get one.
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Yeah.
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But, you know, I I thought the fact that there are exceptions to the honor all cards rule right now, which I didn't, I I mean, this is at something I've never seen at a point of sale, except for maybe going to a dispensary and saying debit card only.
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Sure.
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You know, I mean that like that's the only thing that I've seen.
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But what talk about those carve outs right now, because there are restrictions associated with the honor all cards rule if you want to opt out from a particular card, right?
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Um, the current honor all cards rule really I mean, it really requires that you do honor all cards.
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The only exceptions are are debit and credit.
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You can choose between those, but that's really it.
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And I mean, most merchants wouldn't want to choose one or the other.
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They would want to pick both.
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But there were ideas about um which which I thought were interesting.
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Um, like the the card the Visa and MasterCard can go to the acquiring banks and actually get a list of the merchants that don't honor all cards.
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Um the one that I thought was super interesting was that there's an idea that a merchant could contract directly with Visa and MasterCard if they didn't want to honor all cards.
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But I find that interesting because every merchant processing agreement specifically excludes Visa and MasterCard, though it incorporates their rules, you know, because they're not they're not a party to these contracts.
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So I haven't really ever seen an instance where a merchant directly can contract with one of the networks.
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Like I've never seen that, right?
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And in fact, I think they try to stay away from it.
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So I was interested in that.
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Um, but I think one of the things that you're talking about, and one of the one of the items that was offered by the networks was this idea that um we're gonna provide these options to the merchants, right?
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And and having more discretion over how they transact and more freedom.
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But I'm in this industry and have been for a long time.
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I wouldn't know the first idea of how to do this.
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And so I guess there was a merchant education program that was offered also offered as part of the settlement.
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Talk about that.
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Okay, yeah.
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So the merchant education program, they offered to um educate merchants about the different types of card acceptance, how you can um change the interchange fees by selecting the types of cards that you want to accept, and also just generally education on like the rules at large.
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But they didn't really specify how they would structure these merchant education programs, or really specifically what they would focus on if they were to implement the programs.
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Or even deliver, right?
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Like because when so this is what I thought was really fascinating about what you did is you broke down something that Visa MasterCard is offering as a settlement, which means it has to have consideration, right?
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And it really has to provide value to whoever the class members are, which would be basically all merchants.
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And I see the value in that, but the networks themselves, they've always been one to obfuscate, which means hide, kind of like the what would actually benefit a merchant.
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I mean, I can't get any standard rules on surcharging and cash discounting, and we'll get to that because I know that's also part of the settlement offer.
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But I'm sitting there thinking to myself, oh, okay, well, you want to create this educational, you know, collateral, if that I'll call it that.
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What does it consist of?
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And how do you deliver it?
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Right.
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And then how do you know that the merchants are actually going to understand it so that they can successfully opt in and take advantage of what this value is?
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I I thought that was pretty interesting.
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Like there wasn't anything at all in detail associated with that?
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Um no, there really wasn't a ton of detail.
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It just said that they would educate based on the they said the value of the settlement proposal.
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They would educate on the rules and they would educate on potential reductions in interchange fees by choosing to accept or not accept cards.
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And so how are the reduction in interchange fees going to work versus associated with honor all cards or only honor uh uh a portion of the cards?
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Yeah, so the the defendant's visa and MasterCard said that they would overall reduce interchange fees, they would average out um the interchange fees on like certain types of cards, and then from that average they would reduce by 10 BPs.
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And then also they said that they would reduce the interchange on standard consumer cards to 125 BPs.
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But the issue with the standard consumer card concession is that there are not there really are not very many standard consumer cards, so it wouldn't it wouldn't be super effective in overall lowering the interchange fees for merchants.
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And then I think another another one of your questions was um how they might apply differential interchange fees.
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And so regarding the changes to the honor all cards rule and the surcharging rule, Visa and MasterCard said that they would create tiers of interchange fees for merchants who choose to surcharge or choose to not honor all cards versus merchants who don't surcharge and merchants who do honor all cards such that the interchange would be higher for merchants dishonoring cards or surcharging.
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On average, right, for a particular yeah.
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And it would be lower for merchants who do honor all cards and who do not surcharge.
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Well, this just popped into my head too, because I thought that concept was interesting.
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Like I honor all cards, I'm gonna get a generally on average lower rate.
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And then it'll scale up depending on if I would try to dishonor a particular type of card.
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And then, you know, in my mind, I'm a metrics person.
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Like, how would that correlate to percentage of cards in use period in the marketplace?
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Like, is it going to have a direct correlative effect?
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Um, but then I was also just thinking about this like, was there any mention of the fact that Visa and MasterCard are two different companies with two different interchange rates?
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And how would they actually um harmonize what those what those tiers would look like?
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Because they can't be like V Visa has its its interchange rates and tables, MasterCard has its.
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They're not the same.
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I mean, I go to surcharging as a as a an example.
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They have a different cap associated with that.
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So obviously, like the the metrics associated with how they classify particular types of transactions and what interchange is assessed, like are how would they harmonize the fact that they're gonna tier it?
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Did they talk about that at all in the settlement?
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No, it didn't say how they would change it, but I imagine it would be based on the merchant category code, the MCC.
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Um, because Visa and MasterCard have like relatively standard MCCs, they translate pretty well over the two networks.
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Um and each MCC has its own interchange rate.
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And also the interchange varies depending on um the type of card you're accepting, like whether your transaction is in person or online.
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So there are actually a ton of variables to the interchange, like for any particular card, any particular transaction.
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So I think that you're right, it would be pretty difficult to standardize.
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But I think Well, you'd have so here's something that's different these days.
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You would have to have almost what I would consider like an API bridge between the card and the and the acceptance device.
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And those two things would have to be able to be dynamic enough to understand that now it has to read the type of card, the type of transaction, and then how to segment it.
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It's almost like, because when we were talking, I I thought the bartender thing was a good, like the bar and then the bartender.
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And how is that employee supposed to be paying attention to any of this stuff?
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How is the even if the merchant could understand, how do you now adopt that to your employees?
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Totally.
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Like how do you it's how do you transition?
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It's absurd, right?
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Can I tell you, Chris?
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I worked in I was I was a bartender all through college.
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Well, it's not surprising.
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I know, right?
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Uh made a lot of money back in the day.
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Um kind of bar was it, Jeremy?
00:20:00.960 --> 00:20:02.079
We'll get into that later.
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No, I worked at they were mostly family restaurants and whatnot.
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We weren't paying attention to that at all.
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If someone was putting some plastic in your face, you took it and you swiped it.
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Totally.
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That's the reality.
00:20:13.599 --> 00:20:18.240
So I'm sitting here thinking to myself, human-wise, you know, like how would you do that?
00:20:18.480 --> 00:20:32.559
But programming-wise, like you're talking about to me a change that would have to take place with every single hardware, software, POS system that's accepting payment.
00:20:33.039 --> 00:20:35.839
Because right now I do not believe, and I could be wrong.
00:20:35.920 --> 00:20:38.559
I mean, I could be definitely I'm wrong 20 times a day.
00:20:38.799 --> 00:20:45.200
I could be wrong that the that that detail is there.
00:20:45.599 --> 00:20:51.599
It's just not being um, it's not being identified and then categorized.
00:20:51.759 --> 00:20:53.119
But maybe it is there, right?
00:20:53.200 --> 00:21:03.039
Maybe there's something in the numbering system that actually determines that, and maybe it's just a simple programming update to the software that's doing the acceptance.
00:21:03.119 --> 00:21:05.359
But I thought that would be kind of a difficult one too.
00:21:05.519 --> 00:21:17.279
Like it's because look, I the reason I say this is because I've watched all of the difficulties with POS systems and gateways as it relates to surcharging.
00:21:17.519 --> 00:21:22.400
Like you just did a surcharging project so that we could kind of get your toe dipped into that world.
00:21:22.640 --> 00:21:28.400
And you can see that we did it for an auto dealership, and that was the focus.
00:21:28.559 --> 00:21:37.920
And an auto dealership is five businesses, six businesses under one roof, and the transactions are not the same from department to department.
00:21:38.160 --> 00:21:45.200
Sometimes they're selling a product, sometimes they're selling a service, sometimes they're selling a product, but there's a financing component.
00:21:45.440 --> 00:21:57.759
Like all of this stuff could trigger different regulation in one respect, and then different rules over in, you know, like the quasi legal realm of the card brands.
00:21:57.920 --> 00:21:59.759
Um, and and those two.
00:22:00.240 --> 00:22:02.799
Things don't align and harmonize with one another.
00:22:02.960 --> 00:22:04.240
So it's difficult.
00:22:04.799 --> 00:22:20.480
And even with the proposal here, like there was a I mean, I know right now that trying to program out card acceptance to do compliance surcharge at the dealership level, even with people who are technology people, is difficult.
00:22:20.640 --> 00:22:24.079
I mean, it's got a geolocation aspect to it, there's all these things.
00:22:24.400 --> 00:22:25.680
So Chris, can I ask?
00:22:25.759 --> 00:22:25.920
Yeah.
00:22:26.079 --> 00:22:27.920
Because this is a I think it's fascinating.
00:22:28.079 --> 00:22:32.559
You talked about obfuscation earlier, uh hidden information basically.
00:22:32.799 --> 00:22:44.400
Unless you're sitting at Visa or at MasterCard, does anybody know what information is being collected in terms of like you talked about that metadata almost?
00:22:44.640 --> 00:22:46.240
Is all that being gathered?
00:22:46.480 --> 00:22:48.720
And if it is, who who is getting that information?
00:22:49.039 --> 00:22:57.200
I think every bit of data associated with what is programmed into the, and I'll call a card a device.
00:22:58.079 --> 00:23:01.440
Everything like once all of it is trade traced.
00:23:01.759 --> 00:23:03.359
I I think it's all tracked.
00:23:03.599 --> 00:23:05.279
If it's not, it's all traceable.
00:23:05.359 --> 00:23:09.440
And there's identifying information embedded in all of these devices.
00:23:09.920 --> 00:23:12.160
The card, there's a shitload of information.
00:23:12.240 --> 00:23:17.279
It's not just payment card information, it is personal identifying information.
00:23:17.519 --> 00:23:33.680
There's a lot of information because there's fraud and security measures that are embedded into this thing where one the receptacle and the plug can talk to one another to figure out whether or not on this end, this is really a really magic.
00:23:34.160 --> 00:23:34.400
That's right.
00:23:34.480 --> 00:23:34.559
Yep.
00:23:34.799 --> 00:23:35.279
Yeah, that's right.
00:23:35.440 --> 00:23:47.920
And then on this side, yes, like there is the ability to capture it, but software and hardware systems, they don't want to capture it because there's so much regulation that is incumbent with capturing that information.
00:23:48.319 --> 00:23:50.559
So they just feed it through.
00:23:50.799 --> 00:23:54.400
Whether or not it imprints and is stored is a whole nother thing.
00:23:54.640 --> 00:24:01.279
But yes, all of the data associated with all of these devices, it is being tracked.
00:24:01.359 --> 00:24:08.480
There's no way it's being collected somewhere because it has to be you think at the top of the network, the networks for sure.
00:24:08.640 --> 00:24:08.960
Yeah.
00:24:09.200 --> 00:24:09.599
Right?
00:24:09.759 --> 00:24:16.160
But because the networks are two-sided, but it's the it's it's the same coin, right?
00:24:16.640 --> 00:24:28.640
You've got heads and tails, and they're the ones that are the generator or originator of all of the data that we're talking about, except for the personal identifying information.
00:24:28.799 --> 00:24:41.680
But everything else, I mean, cardholder data is generated by the networks, and they're the ones that generate it and tie it to their member banks and whoever's associated with the commerce.
00:24:41.920 --> 00:24:43.599
Same on the acquiring side.
00:24:43.680 --> 00:24:46.480
Like that's just kind of like how it's happening.
00:24:46.720 --> 00:24:50.240
Um, but I don't know who's looking at it and what they do with it.
00:24:50.319 --> 00:24:54.160
And um, I know that there's capability to do a lot with it, right?
00:24:54.400 --> 00:24:56.079
Uh excuse me.
00:24:56.240 --> 00:25:01.519
Evidently, uh Visa MasterCard, the idea is they want to use it to prevent fraud, right?
00:25:01.599 --> 00:25:08.880
I mean, that's the purpose of the networks, is sure to have an exchange where that's what interchange is designed for.
00:25:09.039 --> 00:25:14.480
It's to absorb the cost of fraud associated with running the network.
00:25:14.640 --> 00:25:18.720
I mean, that's that's allegedly why they set it where they set it, you know.
00:25:18.880 --> 00:25:26.079
Um and yet the merchant is left holding the bag when they're defrauded on a a lot, it seems like Chris.
00:25:26.319 --> 00:25:27.359
Or correct me if I'm wrong.
00:25:27.680 --> 00:25:28.400
More so than not.
00:25:28.559 --> 00:25:38.799
I I I I do believe that they're um, you know, I mean, it's the easiest way to describe it is everybody's a child and they have two parents.
00:25:38.960 --> 00:25:42.720
And for them to say that they don't favor one over the other is just nonsense.
00:25:43.039 --> 00:25:48.960
And so there are inherent conflicts because they're really two parents, but you know, yeah.
00:25:49.200 --> 00:25:56.559
Um so yeah, I do I think there's conflicts of interest there where there's favoritism on one side versus another, 100%.
00:25:57.039 --> 00:25:59.759
Um, but that's another podcast.
00:26:00.000 --> 00:26:03.119
I did want to get back to the proposed settlement.
00:26:03.519 --> 00:26:11.759
Um, one of the items that they wanted to uh make amends to were the surcharging and cash discounting.
00:26:11.839 --> 00:26:12.559
Talk about that.
00:26:12.880 --> 00:26:22.160
So for cash discounting, they would change the where you can discount to right now, it's at the product level.
00:26:22.400 --> 00:26:30.720
So I can present a Visa premium card, and the merchant can say, actually, you know, like I really would prefer that you use a different card.
00:26:30.799 --> 00:26:32.960
I'll give you a cash discount, and that's fine.
00:26:33.119 --> 00:26:41.680
But I can't go in with uh American Express or not American Express, Bank of America card and pay with that.
00:26:41.759 --> 00:26:46.000
They can't say, Oh, I don't I don't like Bank of America, I prefer US Bank.
00:26:46.079 --> 00:26:51.759
So So product is the particular type of card brand product versus brand, which is just the brand.
00:26:52.480 --> 00:26:53.200
Yeah, the brand.
00:26:53.440 --> 00:27:00.640
So right now you can only discount at the product level, you cannot discount at the issuer level, but with the with the stuff.
00:27:01.119 --> 00:27:04.079
But again, that would be that would be impossible to determine.
00:27:04.160 --> 00:27:05.200
And think about that.
00:27:05.440 --> 00:27:12.880
Somebody walks up to your place of business, you sell something unique, and they you look at them and go, nope, not that card.
00:27:13.200 --> 00:27:13.680
Really?
00:27:13.839 --> 00:27:14.640
Like, really?
00:27:15.119 --> 00:27:22.720
Well, also you can't, I mean, there's no way for you to say, I don't, I won't take your card issued by American Express.
00:27:22.880 --> 00:27:25.599
You can only say, I don't, I don't want to.
00:27:25.759 --> 00:27:27.599
Or I guess it would be it would be US bank.
00:27:27.680 --> 00:27:29.119
I can't take your US bank card.
00:27:29.200 --> 00:27:33.839
You have to say I don't want to, and then the the cardholder could be like, I I don't care.
00:27:34.000 --> 00:27:37.440
I want to pay with my US bank card.
00:27:37.519 --> 00:27:39.359
And the merchant has to say, okay.
00:27:39.839 --> 00:27:52.880
Yeah, I think it's interesting because this idea of of um being able to surcharge at a at a product type, who who the hell is ever going to be able to identify the product type?
00:27:53.039 --> 00:28:01.839
And if my average ticket price is$500, am I really going to tell the person no, I'm not going to sell to you because of this or that?
00:28:02.000 --> 00:28:04.799
I mean, I kind of I find that to be a little bit ridiculous.
00:28:04.880 --> 00:28:16.480
That A, as a merchant, I'd be able to identify the opportunity, and B, that I would actually take advantage of the opportunity in in the potential forfeiture of all of the profit that I could make.
00:28:16.720 --> 00:28:17.119
Exactly.
00:28:17.279 --> 00:28:28.079
You know, I mean, because I've I've turned off the uh you know, I've turned off the the the consumer by me being persnickety about you're never getting night client back again.
00:28:28.319 --> 00:28:28.799
Yeah, yeah.
00:28:28.880 --> 00:28:30.720
I mean I I I think that one's a tough one.
00:28:30.799 --> 00:28:30.960
Yeah.
00:28:31.279 --> 00:28:40.559
The the other thing I found interesting was that Visa MasterCard on surcharging have rules associated with American Express transactions.
00:28:42.079 --> 00:28:43.359
That one explained that one.
00:28:43.440 --> 00:28:44.480
I thought that was an interesting one.
00:28:44.720 --> 00:28:48.079
So it's not specifically American Express, that's just the way that it works out.
00:28:48.319 --> 00:28:50.559
It's open versus uh closed networks.
00:28:51.440 --> 00:28:53.039
Not necessarily that either.
00:28:53.200 --> 00:29:11.599
What it is, is if a merchant wants to surcharge all of the networks and um one network, they're usually called like a competing network or a competitive network, has a higher cost of acceptance and limits surcharging.
00:29:12.000 --> 00:29:22.640
The merchant can only surcharge um MasterCard and Visa to the extent that they're allowed by the competing card brand to surcharge that competing card brand.
00:29:22.799 --> 00:29:34.400
And it so happens that American Express does have a higher cost of acceptance, and it also has historically prevented or severely limited surcharging.
00:29:34.880 --> 00:29:47.599
So by implementing this rule, Visa and MasterCard have essentially, and I think purposely made it more difficult for merchants to surcharge across networks.
00:29:48.000 --> 00:29:49.519
Yeah, I thought that was really interesting.
00:29:49.599 --> 00:29:50.640
They cap out.
00:29:50.799 --> 00:29:58.240
So you still have to pay the difference between the like the visa cap on surcharge and the cost of acceptance on American Express.
00:29:58.480 --> 00:30:01.599
And I think that technology technologically would be difficult.
00:30:01.839 --> 00:30:05.039
Like how how are you actually determining that?
00:30:05.200 --> 00:30:13.599
It it it and it made me that actually helped me understand how you can act you can surcharge an American Express debit card because it's closed network.
00:30:13.759 --> 00:30:16.000
Like that was that was a very interesting one too.
00:30:16.160 --> 00:30:21.759
Because on Visa and MasterCard, you cannot based on on uh Durbin.
00:30:22.000 --> 00:30:22.799
Yeah, on Durbin.
00:30:22.960 --> 00:30:23.440
Yeah, yeah.
00:30:23.519 --> 00:30:36.720
And I and that that was very interesting because it kind of clicked for me where I I didn't realize that American Express had debit cards until last year, but they do have debit cards and they can be surcharged because they're not in an open network.
00:30:37.039 --> 00:30:40.880
Chris, you've talked about the complexity and Jessica, the complexity of the surcharging.
00:30:41.119 --> 00:30:49.200
Anecdotally, and I won't even say the name of the CRM, but the CRM that our firm uses is the premier CRM for law firms.
00:30:49.359 --> 00:30:49.680
Okay.
00:30:49.920 --> 00:30:52.960
Hundreds, if not thousands, of law firms using it across the country.
00:30:53.279 --> 00:30:56.079
Surcharging is an issue with this CRM.
00:30:56.160 --> 00:30:56.480
Yeah.
00:30:56.720 --> 00:31:00.400
We haven't even implemented it yet because they haven't been able to figure it out.
00:31:00.640 --> 00:31:03.440
No, it's uh well, part of it is that they haven't been able to figure it out.
00:31:03.519 --> 00:31:10.400
The other part of it is we're still in that 30-day notice requirement, which they actually follow like very, very specifically.
00:31:10.720 --> 00:31:11.279
Good to know.
00:31:12.000 --> 00:31:16.400
If you're gonna surcharge, this came up with a client of ours, he brought it to my attention.
00:31:16.559 --> 00:31:19.119
He's a longtime Card Connect guy.
00:31:19.519 --> 00:31:24.799
And Card Connect's owned by FiServe, and FiveServe's the largest processor in the world.
00:31:25.039 --> 00:31:36.720
So when he was signing up merchants, he was being told by FiServe as it related, I want to say to Visa, that just by being with CardConnect, they were automatically like grandfathered in.
00:31:36.960 --> 00:31:47.039
The minute that they are that they're um uh approved for a mid, they the the 30-day notice, they don't even have to notify them.
00:31:47.119 --> 00:31:47.759
It's done.
00:31:48.000 --> 00:31:52.640
And when I said, Well, how are they monitoring whether or not you're surcharging in the first 30 days?
00:31:52.799 --> 00:31:54.880
And Card Connect came back and said they're not.
00:31:55.039 --> 00:31:59.680
Like we they we just as long as we've approved them in our underwriting, it's fine, right?
00:32:00.240 --> 00:32:10.640
MasterCard, no, he had to go and actually tell MasterCard for each particular merchant that this was happening, but he didn't even know how to do that necessarily.
00:32:11.200 --> 00:32:17.599
And how is the merchant supposed to distinguish if they just start a surcharge program between one or the other, right?
00:32:17.920 --> 00:32:21.920
And all of the fines would come back to him if the merchant can't pay him.
00:32:22.079 --> 00:32:30.160
And he was asking these questions and he was getting information that actually uh violated the card brand rules.
00:32:30.400 --> 00:32:31.359
It was really interesting.
00:32:31.519 --> 00:32:33.440
And there is, there's a lot of look.
00:32:34.480 --> 00:32:41.440
I I don't know if I want to say his name's Rob Johnson.
00:32:41.519 --> 00:32:53.279
I don't know if Rob Johnson from Visa Visa watches this podcast, but I invite Rob anytime because I got about 10 questions where there's a lot of gray area and we don't really know.
00:32:53.920 --> 00:32:59.599
And it would be helpful because fines are happening all the time to really know.
00:32:59.759 --> 00:33:11.599
And and look, the fines they affect the merchants, they affect uh they they they affect the sales organizations, they affect the processors and the banks, depending on who holds risk.
00:33:11.839 --> 00:33:20.160
Because if somebody can't pay it, this it goes upstream, somebody's gonna have to pay one of these these fines that comes comes along.
00:33:20.400 --> 00:33:24.960
So um, but yeah, I mean I I I think all this stuff is interesting.
00:33:25.119 --> 00:33:32.799
So when I was talking to Jess, I was like, you know, all of this this data that you've you're giving me is really interesting.
00:33:33.119 --> 00:33:36.720
But we really need to understand like what's the purpose of us talking to people about it.
00:33:36.799 --> 00:33:37.039
Yeah.
00:33:37.279 --> 00:33:42.400
And um for me, I'm gonna give my opinion.
00:33:43.200 --> 00:33:46.400
This just sounds like a whole bunch of window dressing.
00:33:46.720 --> 00:34:05.359
It's a sales job that they're trying to sell a benefit without having to give actual dollars uh to change a system in a way that would be extremely difficult to get adoption by the people that are presumably supposed to be getting the benefit.
00:34:06.240 --> 00:34:07.599
That was my take.
00:34:07.839 --> 00:34:12.000
Again, anybody from the card brands wants to call me and talk to me about it.
00:34:12.239 --> 00:34:18.239
I'd be happy to like come on and retract that statement if I understood a little bit better what the plan was.
00:34:18.400 --> 00:34:20.079
But what's your thoughts?
00:34:21.760 --> 00:34:30.880
I think that the changes to the honor all cards rule and the changes to the discounting rule are not particularly helpful.
00:34:31.360 --> 00:34:41.760
Like I said, merchants really I mean, of course they could not honor all cards, but they really don't have a choice if they want to keep their bottom line up.
00:34:42.079 --> 00:34:54.880
And I think also the discounting at the issuer level doesn't really help because cardholders can just say, No, I don't I don't want to switch cards, I want to pay with this card.
00:34:55.199 --> 00:35:02.880
So I mean merchants have no no way to force cardholders to pick a different card through discounting.
00:35:03.679 --> 00:35:07.440
I think the surcharging rules could be helpful.
00:35:08.079 --> 00:35:14.960
Um I mean MasterCard through the settlement proposal actually lowered its surcharge cap to 3%.
00:35:15.840 --> 00:35:18.800
Um so if you said MasterCard would be at the same time.
00:35:18.960 --> 00:35:20.239
Oh, that's part of the settlement too?
00:35:20.320 --> 00:35:20.880
Oh, I didn't know that.
00:35:20.960 --> 00:35:21.199
Oh, okay.
00:35:21.440 --> 00:35:23.280
It'd be at the same surcharge cap level.
00:35:23.599 --> 00:35:24.079
That's big.
00:35:24.320 --> 00:35:24.880
That's huge.
00:35:25.119 --> 00:35:25.440
Yeah.
00:35:25.760 --> 00:35:33.920
I think it would be helpful to remove the um the competitive card rule, which the settlement does do.
00:35:34.000 --> 00:35:46.719
It would remove the competitive card rule so that merchants wouldn't have to lower their surcharge if they also chose to surcharge American Express.
00:35:47.199 --> 00:35:54.239
Um, I think what might be the most helpful is probably the merchant education if utilized properly.
00:35:54.400 --> 00:35:58.000
I think a lot of merchants don't know much about interchange.
00:35:58.239 --> 00:36:08.000
And from what I've read, I think a lot of merchants don't even understand like the components that go into their merchant discount.
00:36:08.320 --> 00:36:22.880
So I think telling merchants actually what makes up their merchant discount, like the different types of merchant discount fee they can choose from, like the benefits, the detriments of those discounts would be helpful.
00:36:23.679 --> 00:36:29.679
Um and I think more broadly, like education on the rules can be helpful, like we were discussing earlier.
00:36:29.920 --> 00:36:38.000
If merchants got some sort of education on on match, like how to avoid being placed on match, I think that would be super helpful.
00:36:38.559 --> 00:36:50.800
So overall, I would say surcharging kind of helpful, merchant education helpful, everything else, mm-hmm, not not great.
00:36:51.199 --> 00:36:51.840
Alright.
00:36:52.320 --> 00:36:58.000
Well, look, I I want to thank you for putting all this together because this was a really great data.
00:36:58.480 --> 00:37:02.880
You really got to kind of be a payments geek to really like you know, really get into this.
00:37:02.960 --> 00:37:04.239
But I know it's fascinating.
00:37:04.480 --> 00:37:19.199
I do think it has some far-reaching applications to it because it applies to every single merchant, and I it would be interesting to know what kind of impact it would have if it could actually be implemented and you could see the benefits to it.
00:37:19.440 --> 00:37:31.599
Um, but I invite anybody who's listening to this, if you have a thought or an opinion about it, we'd actually really like to know because this is uh talking about fundamentally shifting acceptance.
00:37:31.920 --> 00:37:34.400
And I think the only way to do that is through education.
00:37:34.559 --> 00:37:35.679
I think it's very interesting.
00:37:35.840 --> 00:37:38.400
So uh, but thanks a lot for putting it together.
00:37:38.880 --> 00:37:43.679
Everybody, Jessica Walsh, um, new attorney at our firm, longtime member.
00:37:43.840 --> 00:37:45.840
And uh we'll see you next time.
00:37:46.079 --> 00:37:46.639
Excellent.
00:37:46.880 --> 00:37:51.760
And thank you for listening this long to the Payments Experts Podcast, a podcast of Global Legal Law Firm.
00:37:51.920 --> 00:38:00.000
We've had in Studio joining us, managing and founding partner of the law firm, Christopher Dryden, as well as associate attorney in our transactional department, Jessica Walsh.
00:38:00.159 --> 00:38:00.719
Thank you so much.
00:38:00.800 --> 00:38:01.920
We'll see you on the next one.
00:38:02.079 --> 00:38:02.719
Bye-bye.
00:38:02.880 --> 00:38:09.840
Thank you for listening to this episode of the Payments Experts Podcast, a podcast of Global Legal Law Firm.
00:38:10.079 --> 00:38:14.960
Visit us online today at Global Legal Law Firm dot com.
00:38:16.639 --> 00:38:20.400
Matters discussed are all opinions that do not constitute legal advice.
00:38:20.559 --> 00:38:24.000
All events or likeness to real people and events is a coincidence.